"Any occurrence requiring undivided attention will be accompanied by a compelling distraction." Robert Bloch (1917 - 1994)
As most of my readers know, a few of my primary objectives here at TFP are to apply the critical reasoning inherent in philosophy by asking questions others may not be asking and to keep the psyche of prudent investors grounded...
There is no doubt that the investor herd's "undivided attention" is being given to the subprime fallout and credit market contagion as evidenced by the hefty selloff thus far this week. Just two months ago, investors were fixated on record highs for stocks and ignored foreseeable flaws in the credit markets. Now that those flaws are being priced into stocks, would it not be a similar mistake to fixate on the negative news and, even worse, react to it?
What I tell my clients is that an investor's focus should never be on what is uncertain -- only on what is certain, which is the investment time horizon, investment objective, risk tolerance, and risk capacity of the given investor. Those certainties, in turn, become the framework for the investor's asset allocation and, hence, the concern over the inevitable market "distractions" should be removed.
In summary, the prudent investor will expect (and often profit from) the kind of blinding market distractions that cause short-term price dislocations.
Stay focused...
TFPAuthor, Kent Thune, is the President and founder of Atlantic Capital Investments, LLC (ACI), a 'fee-only' Registered Investment Advisory firm located in Mt. Pleasant, SC.
Kent,
That is a very good way of looking at things when it comes to your long term investments. Reminds me of some of the things that Jim Puplava was saying to listeners in a recent Financial Sense Newshour broadcast.
http://www.financialsense.com/fsn/BP/2007/0818.html
Basically, he's saying that if you've come to understand why you are invested in a certain area, and you believe that your investment thesis is sound, you will be able to better ignore or take advantage of the short or intermediate term shakeouts and panics.
Posted by: David | August 29, 2007 at 02:16 PM